The income tax Act, 1961 enumerates in S. 10, the items of income which are exempt from tax. Agriculture Income is exempt from tax if it comes within the meaning of “Agricultural Income”.
What is exempted income?
- As per S. 10 to 13A, certain incomes are either totally exempt from tax or exempt up to a certain limit.
- Such income which do not form part of total income may also called incomes exempt from tax.
Conditions laid down for such exemption:
1. Agricultural income is defined in S. 2(1A) which means any rent or revenue derived from land situated in India and used for agricultural purpose and subject to other conditions
2. It includes income from such land by agriculture or from performance / sales by cultivator or receiver of rent in kind to render produce raised or received to make it fit to take it to market
3. income derived from saplings or seedlings grown in nursery
4. income derived from any building owned or occupied by cultivator or receiver of rent used for purpose referred in clause 2.
However income derived from processing of agricultural produce would not be considered as agricultural income.
Exemption u/s 10(1):
- Agricultural income= Totally Exempt
- Provided it falls within the definition of agriculture income given u/s 2(1A).
S. 10(1), 11 of the IT Act, 1961; S. 4(b) of Tamil Nadu Agricultural Income Tax Act, 1955—Exemption—The claim of the assessee for exemption must rest on the proof that the assessee adduces as to its status as a charitable institution and since the assessee could not produced the trust deed before the revisional authority, the matter is remitted back to the revisional authority concerned to verify the trust deed to consider the claim for exemption—ST. Joseph’s Estate vs. State of Tamil Nadu (2009) 310 ITR 451 (Mad)
S. 2(1A) & 10(1) of IT Act, 1961—Agricultural income—Basic/ primary agriculture activity and subsequent/ secondary agriculture operations thus constitute an integrated agriculture activity. Primary as well as secondary agriculture activities both carried out conjointly thus comprehend agriculture operation. So a nexus is needed between agriculture land with agriculture operation to treat an income as agriculture income. The fundamental requirement is that it should remain connected with the basic agriculture operation. Hence, as per S. 2(1A), income earned from floriculture activity of growing rose plants on leasehold agriculture land falls within the definition of agricultural income and same is eligible for exclusion from total income u/s 10(1) of the Act—DCIT vs. Best Roses Biotech Pvt. Ltd. (2012) 144 TTJ 645 (ITAT-Ahd)
S. 2(1A), 10(1) of IT Act, 1961—Agricultural income—In order to constitute agricultural income, u/s 2(1A)(b) of the Act, two conditions have to be satisfied, viz., (i) the land must be used for growing all or any of the commercial crops, (ii) that the income should be derived from such land by agricultural. The assessee who involves in basic agricultural operations and growing basic seeds. Basic seeds produced and sold by the assessee are the result of primary as well as subsequent operations involving huge skill and efforts as defined u/s 2(1A) of the Act and same is agricultural income as provided u/s 2(1A) of the Act and entitled to exemption u/s 10(1) of the Act—Vibha Agrotech Ltd. vs. ITO (2009) 314 ITR 231 (ITAT-Hyderabad)
As Per Section 10(1), of the Income Tax Act, 1961-
Incomes not included in total income.
In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—
(1) agricultural income